Investing in New Pre-construction Condominiums In Yorkville & Downtown Toronto. How to get the maximum Return On Investment (ROI).
Identify Your Investment Objectives What are your plans for the unit once the building is finished and registered? Do you plan to sell the unit or rent it out?
"Rate of Return Investors" buy for rental income while "Wealth Preservation Investors" buy as a safe place to park their money and hold, earning a return on their investment when they sell the unit.
Understanding The Realities & Underlying Economics of Downtown Toronto's New & Pre-Construction Condo Market Prices for new construction condos are more expensive than resale units in downtown Toronto. With pre-construction units selling at today's prices (average $700-800/sf in the downtown core and $900-1000/sf in Yorkville) one has to be careful that carrying costs (mortgage, maintenance fees & taxes) will not exceed average rent levels when the units are completed. While Toronto's rental market is currently very tight we don't anticipate seeing huge rental increases as new condo buildings continue to be completed and keep supplying the market with more rental inventory.
So if you are looking to buy a pre-construction unit to rent out once the unit is completed and want a return on the rent you most likely will not be able to generate a huge rental income (unless you have no mortgage or a very small mortgage) but rather best case scenario you will take home a small amount of money or break even after covering the carrying costs.
If you plan to sell the unit once the building has registered take note that we are not seeing great market appreciation just after the condo has been completed and closed. At this point as a buyer, you would have paid the purchase price for the unit as well as hidden fees and extra costs from the builder including interim occupancy fees, HST and Land Transfer Tax. On the purchase of a $700K unit, land transfer tax amounts to just over $20K. At this stage all of these expenditures dramatically offset any gains made in appreciation of the unit thus far.
When the building finally registers it is the time when you see the most units in the building come up for sale on the MLS. The sellers are made up of buyers who bought off plans years ago and now want to sell and builder’s unsold inventory. Usually 10%-20% of the units in the building are for sale at this stage and that greater supply brings puts downward pressure on prices and eats into the appreciation.
Because of all these factors we are now starting see natural appreciation take a year or two after the building has registered, once all the speculator and leftover builder inventory has been sold.
Selecting A Condo Project Look for high quality finishes and unique features that make the building stand out from other condominium buildings in the area. Unique features could be things like direct access to the subway or green high efficiency mechanics that will keep maintenance fees low. Also consider the building structure. Beware of glass exteriors which could have maintenance issues in the future.
Look at the make-up of the units in the building. Buildings of predominantly one bedroom or one bedroom plus den units tend become rental buildings with few units being owner occupied. These buildings tend to age faster with more wear and tear from moving and not as much care is taken to the general day to day upkeep of the building with owners living offsite.
Balconies and or terraces should be standard. As houses in downtown Toronto become out of reach in terms of affordability for many, the Toronto condo is now the new house and people want units with outdoor space as the balcony or terrace replaces a backyard.
Do your research on the builder. A great resource is Tarion.com where you can check out the builder's track record under the Licensed Builder Directory. Visit other condo developments the builder has built and speak to residents. How has the development stood up to the test of time?
What Type Of Unit To Buy Right now I am advising my clients to buy two bedroom units in new condo developments in Toronto. In the past few years builders in Toronto having been building and selling a lot of one bedrooms and one bedrooms plus dens. There are not a lot of 2 bedroom units being created.
But in the next few years once people outgrow these one bedrooms there is really no where for them to go as you would need to jump up to luxury buildings if you want anything bigger especially in downtown Toronto.
By the time a pre-construction condo is built in three or four years from now two bedroom units will be much better positioned for resale and return on your investment than one bedrooms. Similarly this will be the case for rental as two bedroom units will be in greater demand to rent simply because there will be less of them available.
If a one bedroom unit or one bedroom plus den is all you can afford then only consider buildings which offer a great variety of suite sizes and price ranges. Again avoid condo projects made up of mainly one bedrooms units as these will likely become rental buildings and units won't hold their value as well when it comes time to sell.
The opposite is true for luxury condo developments. If you are considering purchasing a luxury unit only look at luxury condo projects not regular condo projects that also feature luxury suites. Luxury units in buildings that offer a large choice in unit sizes from bachelors to penthouses and a variety of price ranges don't tend to hold their value as well as luxury suites in buildings that only feature high end units right across the board.
Floor plans - the boxier the better as angled walls prove difficult for furniture placement. Also avoid floor plans that are too narrow which give the effect of living in a bowling alley or a very long hallway.
Finally, always spring for a parking spot as this will be invaluable when it comes time for resale. Same with balcony. Even though you think you may never use it, a unit with a balcony is always more desirable if only as a place to offer to guests to step outside to smoke.
There Are Still Good Buying Opportunities In This Market Contact Me to find out more about these “sweet spot” opportunities in the Toronto Condo Market. Retaining your own real estate agent to represent you in your new construction condo purchase won’t cost you anything and could actually end up saving you plenty of time and money.
Victoria Boscariolis a real estate agent in Toronto Canada with Chestnut Park Real Estate Limited Brokerage. With over 20 years experience, Victoria has been helping people successfully buy and sell condos and houses in Yorkville and downtown Toronto. As a Certified International Property Specialist (CIPS) she has worked with Buyers from around the world moving to Toronto from China, Russia, Brazil, India, South Africa, United Arab Emirates, Jordan, Cyprus, Italy, Germany, The United Kingdom, Australia and the United States.